Question
. a. You have an asset that produces quarterly fixed cash inflows of $10,000, but you anticipate rising interest rates. Explain how you could enter
. a. You have an asset that produces quarterly fixed cash inflows of $10,000, but you anticipate rising interest rates. Explain how you could enter a swap contract to take advantage of rising rates, and increased cash flows, without selling the asset and investing in a higher-paying asset. Diagram the swap, including the notional principal and payments, assuming a swap fixed rate of 4%. b. Over the first quarter the swap is in force, the floating rate (LIBOR) rises to 4.1%. List the size and direction of all three cash flows to the swap.
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